American Apparel Again Warns It Could Go Bankrupt

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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Los Angeles hipster clothing brand American Apparel – which made an appearance on the 2007 Inc. 5000 – Tuesday warned that it had "substantial doubt" about its ability to remain in business.

The company reported double-digit sales declines and a $9.5-million quarterly loss – its second straight quarterly loss. For the quarter that ended September 30, the company pulled in $134.5 million in sales, a dip of 10.5 percent from the same quarter last year. At stores open at least a year, sales slid 16 percent. The company went public in 2007, and has 278 stores globally.

American Apparel's usually colorful CEO and founder, Dov Charney, said simply: "The American Apparel brand remains strong. I have seen reinvigorated interest in our brand, and our customers are recognizing us for our new products. We plan to continue driving sales of our basics as we align product design and development with more efficient manufacturing." (Read a 2005 Inc. profile of Charney here.)

The beleaguered brand – nearly as famous for having a CEO who cavorts around the office in his underwear as for its bright wardrobe basics – announced plans to improve its performance with an initiative that will speed distribution and lower costs.

In August, the company first raised the alarm that it could go bankrupt. In a press release, it announced slumping sales (down 16 percent), huge second quarter losses (somewhere between $5 million and $7 million), and the likelihood that the company "may not have sufficient liquidity necessary to sustain operations for the next 12 months."

That language was repeated in a 59-page filing with the U.S. Securities and Exchange Commission Tuesday. The company said it might not survive for the next 12 months and might violate a term of its loan agreement with London private equity fund Lion Capital. (The agreement was amended just last month.)

In October, under pressure from lenders, the company hired former Blockbuster chief financial officer Tom Casey as acting president – ostensibly so Charney could focus on the creative side.